Friday, September 19, 2008

The Rich Take the Profits, the Taxpayers Cover the Losses - Is this What America Has Become?

I dunno about you, but I'm getting pretty pissed off at all the money that I, as a taxpayer, am having to shovel out to cover the losses of irresponsible Wall Street giants, now estimated at up to $1 trillion. I sure didn't get a chance at all the profits made by these firms when they were flying high, making billions in fees on loans they knew they shouldn't have been making.

These bailouts are wrong, period. They are doing them because our entire economy is based on a sham of fiat currency and debt, and I understand the desire to keep the balls in the air as long as possible. But it is criminal to set up scenarios where private companies can make risky moves, keep the profits when they succeed, and get public bailouts when they fail.

4 comments:

The old saying, "If you owe the bank $100,000 you're in trouble, but if you owe the bank $100,000,000 the bank's in trouble," seems rather apt now.

I have trouble stomaching the bailouts for these foolhardy fellows as well.

It would be interesting to see if someone were able to tabulate the total costs of regulation (I know the very idea of "total costs" is problematic here) over the time period from when it was gutted to this,the latest, meltdown. We could then see which is cheaper (ceteris paribus)-- a properly regulated economny with strong oversight-- or massive multi-billion dollar bailouts?

The bailouts are the natural extension of the economic policies and intentions of Bushco -- take from the working and give to the wealthy. It's just part of the same deal. Hard to stomach, but we have no choice. Lots of folks tried to tell the nation that Bush would fundamentally change American economic life, and they were right. We've been watching it happen, but were unclear on the outcome -- this is just a harder landing than we should have expected.

Not sure you really understand how these bailouts are going to work. You are talking as though these bailouts are pure losses, when that is not even close to the truth. The AIG bailout was a loan, backed by AIG's immense assets. There is no doubt that ALL that money will be paid back, with a whopping 12 percent interest, it just was necessary as a bridge measure to allow AIG to liquidate other assets, and even once its paid back we the taxpayers will be left with a 79.9% stake in a historically profitable mega-company. That is a tremendously high price being paid by AIG for a short term loan, so I hardly see the moral hazard. And the new mortgage plan (the one with the "up to $1 trillion" price tag) is almost as good. We aren't going to be giving away all that money, we're buying the mortgage packages. Those aren't useless assets, they're just dramatically undervalued on today's market. The problem again is liquidity, not inherent value of the assets -> no one wants to buy the mortgages, so they can't be converted to cash today, so the companies can't meet their other obligations even though their business and assets are fundamentally sound. In a few years the housing market will tighten back up as new construction slows, and Uncle Sam will find himself left with income streams that he bought for pennies on the dollar. At worst it will be a modest loss on the $1 trillion investment and its not improbable that it will turn a substantial profit.

That doesn't mean this is all great news for the economy, or that the whole mess couldn't have been prevented with better regulation by the Republicans or by smarter businessmen on Wall St, but you are grossly misrepresenting what these bailouts really mean for the taxpayers or for the companies being bailed out. (not to mention making light of the implications of not bailing them out... how much do you want to bet that THAT would cost the taxpayers less than the bailouts?)